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Apache Sells Argentina Operations For $852M

HOUSTON (The Deal) -- Houston oil and gas explorer Apache (APA - Get Report) said after the markets closed Wednesday that it agreed to sell all of its operations in Argentina to state-run YPF SA for $852 million, more than what some analysts were expecting but below what similar properties had sold for in the area.

The price includes $800 million in cash and the assumption of $52 million in bank debt as of June 30 of last year.

YPF paid a $50 million deposit on the transaction, which Apache expects to close in 30 days.

Apache said it had estimated reserves in Argentina of 540 billion cubic feet of natural gas equivalent at the end of last year and produced an average of 256 million cubic feet of gas equivalent per day over the year. It has stakes in 25 fields, including the massive Vaca Muerta shale field.

YPF said separately that the acquisition will boost its reserves by 14% and its natural gas production by 15%.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. wrote in a report Thursday that the sale represents $3,400 per thousand cubic feet equivalent on 254 million cubic feet equivalent per day of production as of the third quarter, or 4.5 times cash flow.

While the analysts found the deal to be neutral to Apache's net asset value and multiples, they said it's likely to be viewed positively, as cash has been trapped in the country. And while net proceeds could be subject to repatriation tax if brought back to U.S., they said that can be avoided if the capital is deployed internationally.

"Management continues to make the right strategic moves by refocusing portfolio and directing capital to highest ROR [rate of return] assets," the analysts said.

Global Hunter Securities Inc. analyst Curtis Trimble wrote in a note that the sale - along with Apache's Canadian, Egyptian and Gulf of Mexico divestitures - not only furthers the company's debt repayment and share repurchase plans, but also focuses the company on its onshore U.S. liquids assets in the Permian and Mid-Continent.

Simmons & Co. International, which valued the properties at $811 million, said in a report that it was surprised the company was able to consummate a transaction in light of the turmoil in Argentina, which is suffering from an economic crisis highlighted by dwindling cash reserves, rampant inflation and wild currency fluctuations.

"While these comps (proved and producing) are low on an absolute basis, it is a reflection of the value placed on assets in this politically challenged country," Simmons said. "Bottom Line: Smart transaction that further streamlines APA [Apache]."

Apache has been selling non-essential assets to pay down debt and improve its financial flexibility, buy back shares authorized by the board last year and invest in more profitable developments. A year ago, it said it planned to shed $2 billion in assets, a target that was boosted to $4 billion in May.

However, Apache beat even its raised target - with the latest transaction, the company said it had realized more than $7 billion in cash proceeds from asset sales in the last two quarters.

"Over the past year, Apache has taken decisive steps to focus its portfolio on repeatable and profitable long-term growth in areas where the company has industry-leading positions, such as its deep inventory of liquids-rich drilling opportunities onshore North America and international assets generating large free cash flows," Apache chairman and CEO G. Steven Farris said in a statement. "This transaction is consistent with that strategy."

Apache is also exiting a very difficult country in which to operate.

Argentina is thought to have the most shale natural gas resources in the world after China and the fourth largest in terms of shale oil. But because of a lack of development, it's had to import billions of dollars of fuel each year, creating a trade deficit.

In 2012 Argentina's President Cristina Fernandez de Kirchner clawed back control of the country's oil and gas sector by expropriating a 51% stake of YPF from Spain's Repsol SA.

This past July Apache sold its Gulf of Mexico assets to Riverstone Holdings LLC-backed Fieldwood Energy LLC for $3.75 billion in cash. And in August it shed a one-third stake in its Egypt operations to China Petrochemical Corp. for $3.1 billion.